1. Field of the Invention
This invention pertains to a method of preparing beneficial settlements for the chronically ill using life insurance policies. The method is best implemented by a computer or similar device.
2. Description of the Prior Art and Objectives of the Invention
Viatical settlements have existed within the financial community for several years. In the typical viatical transaction, the investor purchases a life insurance policy of a terminally ill individual for an amount calculated from the individual""s life expectancy. The terminally ill patient gets an immediate infusion of cash to pay medical bills or the like and the investor ultimately receives the proceeds from the life insurance policy. Thus, the investor gambles that the insured individual will die at or before the insured""s present life expectancy by paying the present value of the policy""s face value, based on that life expectancy.
However, continuing medical advances make this a risky proposition for the investor. As new drugs arrive on the market and new methods of treating illnesses become widespread through the research and dedication of doctors, life expectancies, especially among HIV positive individuals continue to increase. While good for the terminally ill patient, these advances make viatical transactions poor vehicles for investment.
With the above concern in mind, it is an objective of the present invention to provide a beneficial settlement package for terminally or chronically ill individuals which still provides a solid vehicle for investment.
It is a further objective of the present invention to present storage media which contains the instructions to arrive at the beneficial settlement.
It is still a further objective of the present invention to provide a method which provides a certain level of return based on the investor""s desired criteria.
It is yet a further objective of the present invention to provide a computer which is programmed to provide the output indicating the levels of returns for the beneficial settlement.
It is another objective to allow chronically ill individuals to extend their life insurance coverage in exchange for a decreased payout to his beneficiaries.
These and other objectives and advantages will become readily apparent to those skilled in the art upon reference to the following detailed description and accompanying drawing figures.
The aforedescribed objectives and advantages are realized by providing a method of calculating a financial transaction which is well suited for computer or other storage media implementation. While a conventional spread sheet program, such as QuattroPro(trademark), may supply the most dramatic presentation, the algorithms used to arrive at the desired outputs are unique to the present invention.
The method essentially consists of the chronically ill patient or insured contracting to allow the investor to pay the premiums of the life insurance policy in exchange for a portion of the life insurance proceeds. It should be understood that the word xe2x80x9cinvestorxe2x80x9d may represent an individual or a corporation as suits the needs of the insured or capital providing parties.
Initially a conventional screening process is completed to verify that the insured individual is in fact appropriately chronically ill and presently carries a life insurance policy. This screening process is nearly identical to the screening process used in conventional viatical settlements, except that it accepts chronically ill individuals, not just terminally ill individuals. Thus, there is less concern about the predicted moment of death, rather the concern is whether the individual is chronically ill, which is presently defined as remaining ill for more than ten years. After passing through the initial screening process, the insured provides to the investor the numbers representing a total death benefit of the life insurance policy and the total annual premiums required to keep the life insurance policy in place. A ratio is calculated by dividing the premiums by the death benefit. This ratio (always less than one) is called variable A.
A second variable is selected and labeled B. B is preferably between zero (0) and twenty (20) and ideally approximately four (4). While negative numbers and numbers larger than twenty are possible, such numbers impact the ultimate payouts in a generally undesirable fashion and are not preferred.
A third variable is selected and labeled C. C is preferably between zero (0) and ten (10) and ideally twenty-five hundredths (0.25). Again, while negative numbers and numbers larger than ten are possible, such numbers impact the ultimate payouts in a generally undesirable fashion and are not preferred.
The three variables are plugged into the following equation:
Output={1xe2x88x92[(B+(C*(nxe2x88x921)))+(A*100*(B+(C*(nxe2x88x921))))]/100}*(Total death benefit)
Where n represents the year of the contract. This equation provides the first year death benefit. That is, if the insured dies in the first year of the contract, the insured""s estate receives the output, and the investor receives the value of the life insurance policy (Total death benefit) minus the output.
This equation is iteratively used incrementing n by one every year and substituting the previous output for the total death benefit to provide outputs for each year of the contract. The contract is completed when the amount of the premiums paid by the investor plus his required rate of return equals the total death benefit, at which time the investor preferably owns the entire proceeds of the life insurance policy. This requires the investor to continue paying the life insurance premiums, but he ultimately receives the entire proceeds when the insured passes away. This shifts the risk from the investor as in typical viatical transactions to the insured. Whereas in typical viatical transactions if the insured exceeds his life expectancy, the investor loses money, in the present method, if the insured exceeds his life expectancy, his estate gets nothing. On the other hand, the insured is provided the opportunity to extend his life insurance coverage much further than he might otherwise be able to afford, and can have the peace of mind that he will leave money to his estate in all likelihood.